Recap: Wealth is the sum of all assets, minus liabilities and debt. Assets are specific items of value one owns.
Liquid assets are cash or “cash-equivalents” - items easily converted into cash without significant loss of value - such as bank accounts, money market funds and stocks - except for stocks (and bonds) that are prohibited by law or contract from immediate public resale. These “restricted securities” are typically held by company insiders, such as billionaires, with their wealth concentrated in one or a few companies.
Illiquid assets are investments or properties that cannot be quickly converted into cash without a significant loss in value or a lengthy, complex selling process. Examples of illiquid assets include real estate, private equity, venture capital, collectible art, and restricted securities. Even when legal or contractually allowed, selling Illiquid assets quickly is hard because these assets rarely have a ready pool of buyers and would likely require slashing prices, leading to substantial financial loss.
So where would billionaires get the cash to pay a wealth tax? Mostly from their liquid assets, which comprise around 31% or their asset holdings, on average (Altrata, 2024, Cato Institute, 2025). See Post I of this series for more details.
Method: I’m ultimately interested in how a billionaire wealth tax would impact the US economy and American people. To answer that question, even tentatively, requires answering a lot of other questions. My method will be to ask AI a question, review AI sources to confirm accuracy of response, and then tweak the AI summary for brevity, neutrality and relevance, occasionally incorporating AI information from related inquiries. I’ll generally use AI material from 3-4 sources.
I’m using AI in this series, because AI does a decent job of capturing the gist of its source material. However, I don’t assume the source material reflects the whole range of expert opinion on these issues.
Take-away from last post: Compared to other investors, the super-rich are more risk-tolerant, hands-on, and willing to make long-term commitments. They often favor private equity over public stocks and allocate more capital to illiquid investments. They often invest in startups or pre-IPO opportunities.
Question 5: What are the economic benefits of the super-rich investing in start-ups instead of ordinary people? By which I mean ordinary people as investors (not investees).
The economic benefits of high-net-worth individuals ("super-rich") investing in startups rather than ordinary people—typically via angel investing or venture capital—derive primarily from their ability to provide "patient capital" and absorb high risks without immediate pressure for returns. These investors act as essential "agents of transfer," moving wealth from established industries into risky, leading-edge technologies.
Here are the key economic benefits:
Job Creation and Growth: Startups, particularly those backed by venture capital or angel investors, are responsible for nearly all net job growth in the economy. Angel-backed firms hire 40% more employees and are 14% more likely to survive after 18 months than those without.
Support for "Unbankable" Ideas: The super-rich can fund high-risk ventures that banks will not. They provide "patient capital" that allows entrepreneurs to focus on innovation and product development rather than short-term profitability or immediate debt repayment.
Hands-On Mentorship and Network Access: Wealthy investors often provide "smart money"—combining capital with expert mentorship, strategic guidance, and industry networks. This enhances the success rate of startups by helping founders navigate operational challenges, hiring, and pivot strategies.
Fueling Innovation and "Creative Destruction": These investments drive "creative destruction," where new, innovative startups replace less efficient, established firms, leading to higher overall productivity. Successful, VC-backed companies often grow revenue 3 to 5 times faster than non-VC-backed firms, boosting GDP.
Recycling Wealth into New Ventures: Experienced high-net-worth individuals often "reinvest their profits back into leading-edge ventures of the day". This creates a sustainable cycle of innovation, where gains from past startup successes are used to fund the next generation of technology.
Resilience and Risk Tolerance: Wealthy investors can afford to take on the risk of losing their entire investment in high-risk projects. By diversifying across multiple startups, they manage these high failure rates, providing a stable source of risk capital, according to the Cato Institute.
While crowdfunding has recently allowed "Main Street" (ordinary people) to participate in startup investing, it remains a high-risk activity for individuals without the ability to diversify, whereas the super-rich can spread risk across many ventures, ensuring more of these startups reach IPO or acquisition.
Sources: Financial Models Lab, 2026, Medium, 2021, MEI, 2025, 5i Research, 2024
Take-away: The super-rich recycle wealth into new ventures, creating a sustainable cycle of innovation to fund the next generation of technology. They combine capital with expert mentorship, strategic guidance, and industry networks. They can fund high-risk ventures, allow entrepreneurs plenty of time for development, and manage failure - because they can afford to. And, for the most part, ordinary people can’t.
Next Question: What are the economic benefits of the super-rich investing in start-ups instead of institutional investors.